Buying a Second Home: Sensible Steps for Investing in Another Property

Investing in real estate can be a good way to increase your wealth and buying a second home could be the start of something rewarding for you and your family.

If you are thinking about buying an investment property there are a few basics to learn that will stand you in good stead and set you on your way.

Here is a look at how to scout the market and find a suitable property, plus details of tax and insurance considerations, together with an overview of your finance options.

Take your time and do your research

It is always a good idea to show patience and do your research before committing to buy a second home.

If you get in touch with key contacts in your chosen location, such as home builders in Lee County, Florida, they can provide you with important information about local amenities, traffic patterns, and other useful data that can influence and affect the long-term growth in value of the property.

Never underestimate the importance of factors such as location and amenities, as buyers are often willing to pay a premium for a property that ticks all the right boxes in this respect.

Do your research and look at historical price data so that you can see how house prices have performed over time. This will give you a clear indication of the popularity of the area for buyers and show you how good your future prospects are for growth in the value of your intended second home purchase.

Tax and insurance considerations

If you are investing in a second home you do have to think about the tax implications and added insurance costs.

Property taxes vary between states so you need to get advice that is relevant to the location of your second home. It also makes a big difference to your tax burden depending on whether you intend to rent out the property or use it as a family home.

The number of days you spend in your second home can also determine how much income tax you have to pay. Find out your tax-planning options before you buy, so that you know exactly what your options are in advance.

Also, make sure you know what insurance is going to cost you on your second home.

Coastal properties are always popular as second homes but flood insurance in coastal communities can be expensive or even difficult to obtain in the first place.

Whether you are buying a coastal property or a condominium in a metropolitan area, check your insurance options before you complete the purchase.

Financing the purchase

Many people who decide to buy a second home tend to pay with a combination of some of their cash reserves and a loan for the balance.

You will often find that you need to put down a larger deposit if you are buying a property that is not going to be your main residence. Work out exactly how much you can afford comfortably and if you are buying a home to rent out, remember that you will have to find the cash to pay the mortgage when there are rental voids and no rent coming in to pay it.

Follow some of these simple but proven steps when buying a second home, and you will be increasing your chances of making the investment a success.

Faith Parkinson is a property investment consultant. She enjoys keeping up with market movements and has built up an impressive portfolio since 2009. She also enjoys sharing her research and ideas online.

That’s a tough call. Of course, it’s best to be close to your property if possible. Other than that I would say reputation is everything when it comes to hiring a management firm. Fraud repairs, skimming rent off the top, etc. There are many “games” a management company can play. Definitely something to watch out for and with the Internet and review sites out there it should be easier to find a reputable management company. Thank you for commenting.

I’ve never heard of ‘fraud repairs’, though I can see why that would be a concern. You just have to be smart about it. The best way to pick a management company is to choose one that details all related services and expenses related to it. 15% is acceptable if you are completely hands off. Of course, they will never do as good of a job as you. They will rent at lower rates to get their 15% (it doesn’t cost them anything).

Been down this road with multiple companies over the years with my vacation rentals in Fort Myers Beach, FL. I went from barely getting $8,000 gross per year to self-managing in 2016 grossing $47,000 each.YTD 2017, I am at $10,000 for each (which is down from 2016 warmer weather in the north hasn’t sent them down to get away). At least 10,000 baby boomers are retiring every day.

How do I manage from 1300 miles away? I have a cleaner that I overpay $150 per cleaning (she has a couple of employees/friends). It’s a weekly rental. She hands meeting and overseeing A/C contractor (yearly cleaning), local handyman service, deliveries for appliances, sheets, towels and furniture. I compensate her for her time and is much cheaper than paying even 5% for management since I handle the bookings.

Find yourself a retirement age woman. They clean better and don’t steal from you, have been around the block and have no problem tearing into a bad contractor.

Interesting choice of going with Vancouver, B.C. From what I have been reading the home prices there seem very, very expensive even if there is a favorable tax climate. Thanks for sharing your thoughts.

I definitely think that research is important. If you have never purchased an investment property before, I would recommend speaking to someone that currently owns investment properties and get their take on what to look out for, pros and cons, etc. I would also recommend speaking with a lawyer to see what is involved legally to have an investment property. Great information, thanks for sharing!

No doubt legal advice is important. I had a friend who invested in rental property in New Mexico right before the market crash in 2008/09. Of course, renters lost jobs and couldn’t pay him rent, he couldn’t make mortgage payments and the houses were foreclosed. One bit of information that he wasn’t aware of was that New Mexico was a recourse state which meant a lender can obtain a deficiency judgment against him. He thought that the worst thing that could happen would be a bad mark (foreclosure) on his credit and that’s it. Thanks for commenting.

That is actually very good advice. People make the mistake of taking advice from people who have no idea what they are talking about with experience actually owning and operating a rental. This especially goes for realtors. They all think they know what it’s like and entails. But you really don’t until you are in the thick of it.

I remember quite well that during the last real estate boom prior to 2007, it seemed that everyone was a real estate expert and details like the one I mentioned above about recourse states was never brought up until it was too late. They say when your plumber or other non-finance expert starts giving you advice it’s usually a time to sell and go the other way. Thanks for the follow up.

Really, that’s a great discussion for me because I have learned a lot about the new home buying policy. I had unknown some issues which have learned now. Hope this technique would be help to me about sensible home buying possibility…

Glad you enjoyed this post. There are a lot of things to consider when buying a home. Some things are obvious and some are not which is why you must consider all aspects of home buying to minimize those unexpected “surprises.” Thank you for commenting.

Thank you for sharing this advice! I like that you point out that it is important to think about taxes and insurance, because those are some of the extra costs that can be looked over or forgotten. Helpful post!

I think many home buyers, whether first time or second, can forget those extra expenses when figuring out how much house they can afford. While a house is an asset, it’s not a pure income producing asset as many expenses are required on a monthly basis just for maintenance. Taxes, insurance and more expenses can easily be overlooked. Thank you for stopping by and commenting.

I guess with any investment one makes the return (yield) must be calculated to see if it makes sense to begin with. Thanks for sharing your thoughts about buying a second home and what returns in the U.K. should be before making an investment consideration.

Great post! I firmly believe that properties are one of the best form of investment. Not only that it appreciates over the course of time but it’s something that would never run out of purpose. Looking forward to more helpful post.

No question real estate can be a great form of investment, especially over the long haul, but it does take a lot of work to maintain and is not as passive an income source as one would think. Thank you for commenting.

By knowing how much capital you will need and the future point in time when you will need it, you can calculate how much you should invest and what kind of return on your investment will be needed to produce the desired result. To estimate how much capital you are likely to need for retirement or future college expenses, use one of the free financial calculators available over the Internet.

There’s no doubt that calculators can assist anyone in making a decision to buy a home or any investment for that matter. However, life rarely goes as smoothly as calculators and projections show. I think it’s best to buy “less” home than you can afford as you leave wiggle room for whatever may come up. Thank you for stopping by and commenting.

While a lot of people invest in stocks and bonds, I save up my money to invest in real estate. Buying a second home is a hard decision but if you could think it through, it could be the perfect investment for you. Thank you for sharing this!

Many of our fellow stock market investing peers also have real estate portfolios and are trying to grow their wealth via rental properties. If the numbers make sense and you are willing to put in the time then buying a second home makes great sense. Thank you for commenting.

It’s interesting to hear that you would need to make a larger down payment on a house that you aren’t going to use as your main residence. I am looking to move soon, and I want to rent out my condo when I do, so I also really appreciated your tip to have a plan for times when the place is vacant. I’ll have to keep all of this in mind during future real estate transactions.

Whenever a rental is concerned you always have to consider vacancies. If you depend on that income stream to pay for some of your (living) expenses or a mortgage then making sure you have enough of a cash cushion becomes paramount for those months when no income is generated from your property. Thank you for stopping by and commenting.